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Square (SQ) Stock Still Looks Strong Despite Q3 Selloff

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Shares of Square, Inc. (SQ - Free Report) plummeted 9% during regular trading hours Thursday after the company reported its quarterly financial results after the closing bell on Wednesday. The fintech firm topped both top and bottom-line estimates, but some lower-than-expected guidance sent SQ stock tumbling.

Despite its post-Q3 drop, Square appears to be a strong company and its stock seems like it has great upside potential in an industry that is only set to grow.

Quick Q3 Overview

Square saw its quarterly revenues soar 51% from $585.2 million to reach $882.1 million, which came in well above our Zacks Consensus Estimate that called for $860.52 million. Meanwhile, the company’s adjusted quarterly earnings reached $0.13 per share. This marked an 86% surge from the year-ago period’s $0.07 per share and topped our $0.11 per share estimate.

Looking ahead, the company now expects to see its full-year revenues reach between $3.26 billion and $3.27 billion, up from its previous $3.19 billion to $3.22 billion. The midpoint of Square’s outlook represents a 60% climb from fiscal 2017. Plus, the company raised its fiscal 2018 adjusted EBITDA guidance to between $250 million and $255 million, up from $240 million to $250 million.

Investors were likely worried that Square projected that its adjusted Q4 earnings will come in between $0.12 to $0.13 per share, which fell short of our $0.15 estimate. Yet, the company raised the low end of its full-year earnings guidance. Plus, Square, which technically reported its first-ever quarter of GAAP profitably fueled by a $38 million positive impact from its Eventbrite investment, now expects a smaller full-year loss. 

 

 

Other Positives?

Square’s gross payment volume jumped 29% to reach $22.5 billion, which matched our estimate. Another key company metric, subscription and services-based revenues, skyrocketed 155% from $65 million in the year-ago period to hit $166 million. This topped our $152.62 million estimate, driven by Instant Deposit, Cash Card, Caviar, and Square Capital.

Investors should also note that Square reports bitcoin revenue, after the firm began to allow users to buy bitcoin through its Cash App late last year. The company’s Q3 bitcoin revenues reached $42.9 million, up from $37 million in Q2. For the first nine months of the year, Square generated a total of $114.1 million in bitcoin revenue, or roughly 4% of its total $2.37 billion 2018 revenues.

Square didn’t provide any significant Cash App updates, but mentioned that it remains one of the top 25 downloaded free apps in the App Store. “We do see people use the Cash App fundamentally as you would expect them to use a bank account,” CEO and Twitter (TWTR - Free Report) co-founder Jack Dorsey said on the company’s conference call.

“So they'd store money with this. They can direct deposit a paycheck using the ABA number that we give them. We can issue them a plastic card that's accepted anywhere, Visa (V - Free Report) .”

Outlook

Square has soared since going public in the fall of 2015 as it continues to expand its business. The company, which competes against PayPal (PYPL - Free Report) and others, now offers everything from peer-to-peer payment options to small business loans. The San Francisco-based firm’s lending unit landed a deal with eBay (EBAY - Free Report) that will see the company offer loans to eBay sellers. More recently, Square introduce a mobile version of its payroll platform to take on the likes of Paychex (PAYX - Free Report) .

The company also highlighted its Q3 launch of Square Terminal on its conference call. Square’s new all-in-one payment processor doesn’t require users to connect their Square credit card readers to an iPhone (AAPL - Free Report) or other devices. Square seems very confident in the long-term benefit of this new product.

Bottom Line

Investors should understand that Square is a significant player in the ever-growing fintech world that has the likes of JPMorgan (JPM - Free Report) and other banking giants clamoring to offer more digital options.

Looking ahead, Square projects to post Q4 revenues between $895 million and $905 million, which comes in well above our current $891.06 million estimate and would mark a 59% surge from Q4 of 2017 at the midpoint.

Plus, we should note that SQ stock closed regular trading Thursday at $75.23 per share, down roughly 25% from its 52-week high of $101.15. This sets up what could prove to be a great buying point for investors.

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